Slovak govt blocks sale by E.ON/GDF of stake in pipeline operator

By bne IntelliNewsOctober 18, 2012

bne -

Slovak Prime Minister Robert Fico blocked the planned sale by GDF Suez and E.ON of their 49% stake in national gas pipeline operator SPP on October 17, insisting the government won't allow the deal to go through unless the firms end their "arrogant and rogue behaviour" and drop a bid to raise gas prices for domestic customers.

"The government will not give a green light for the sale unless the shareholders say there will be no gas price hike as of January 1, 2013," Fico told journalists in Bratislava, a day after having given the companies an ultimatum, reports AFP. "The government today refused to discuss the sale of a 49% stake in SPP to the Czech company EPH."

The cabinet was due to discuss a proposal to officially pass up its pre-emptive right to buy the stake on October 17, but Fico said the item was dropped from the agenda after SPP refused to withdraw the proposal for a tariff rise. "The government sees absolutely no reason why the German and French shareholders are proposing higher gas prices that would be incredibly high for households," Fico told reporters earlier in the week. "We cannot respect the arrogant and rogue behaviour of the German and French shareholders."

Not best pleased

GDF and E.ON announced their intention to sell the 49% stake earlier this year. While the government holds the other controlling 51% stake, it is the minority shareholders that enjoy operational control. A sale to EPH - an energy holding owned by Petr Kellner's PPF Group that has exhibited a ravenous appetite for acquisition of power and energy assets across Central Europe recently - has looked the only likely result since the stake was put up for grabs.

Fico, a staunch opponent of privatization in general, has been deeply unhappy about the proposed deal ever since it was announced. The PM has clearly stated that his government would buy the stake if it could afford it, and had expressed ambition to renegotiate the clause in the privatization agreement which hands operational control to the holder of the minority stake.

Given the fact that Bratislava has at least two other levers at its disposal to block any price hikes for domestic customers, the refusal to allow the deal to go ahead appears driven as much by the government's dissatisfaction with its failure to achieve that as anything else. As majority owner, of course, the state can simply block a price hike at shareholder level; Fico says he does not want the issue to even be raised at the next AGM. Meanwhile, state energy regulator URSO has repeatedly rejected gas price hikes proposed by SPP in the past, allowing only slower price growth.

The move extends already deep uncertainty over SPP's revenue into its domestic distribution business, the smaller side of the business. By far the biggest question over the company is one for Moscow, rather than Bratislava. SPP operates the Slovak stretch of the main gas route bringing Russian imports into Europe. However, Russia is building new routes, and in its long-winded tussle with Ukraine has threatened to halt all exports through its neighbour. That would see SPP lose the transit fees - the bulk of its business.

That has many questioning EPH's Kremlinology, with some insisting that a purchase of SPP necessarily requires a clear view on Moscow's intent. The same view has been offered on Net4Gas, the operator of the Czech section of the route, which is also up for grabs. EPH - which has close connections in Russia via PPF, especially to the St Petersburg oligarch circle surrounding ICT group - has said it is interested in that asset also.

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